About National Bankshares

National Bankshares, Inc. operates as the bank holding company for The National Bank of Blacksburg that offers a full range of retail and commercial banking services to individuals, businesses, non-profits and local governments. The company owns and has a branch bank in NBI’s headquarters building located at 101 Hubbard Street, Blacksburg, Virginia. The company’s main office is at 100 South Main Street, Blacksburg, Virginia. The company owns an additional branch offices and a private office location for support functions and it leases branch locations and three loan production offices. The company’s primary source of revenue stems from lending activities. It focuses lending on small and mid-sized businesses and individuals. Loan types include commercial and agricultural, commercial real estate, construction for commercial and residential properties, residential real estate, home equity and various consumer loan products. Market Area The company serves customers through its offices in southwest and central Virginia. Although largely rural, the market area is home to several major state-supported universities, including Virginia Polytechnic Institute and State University (Virginia Tech) and Radford University. Recently opened loan production offices in Charlottesville and Staunton also service areas that contain the University of Virginia, James Madison University, Virginia Military Institute, Washington and Lee University, and Mary Baldwin University. NBI’s market area offers the advantages of a good quality of life, scenic beauty, moderate climate and historical and cultural attractions. Loans The company, through its banking subsidiary, provides mortgage, commercial, and consumer loans to customers. Its loans are grouped into six segments: real estate construction, consumer real estate, commercial real estate, commercial non real estate, public sector and IDA, and consumer non-real estate. Real Estate Construction Loans: Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. Consumer Real Estate Loans: The company offers a variety of first mortgage and junior lien loans secured by primary residences within its markets. Consumer real estate mortgages may have fixed interest rates for the entire term of the loan or variable interest rates subject to change after the first, third, or fifth year. Home equity loans are secured primarily by second mortgages on residential property. The company offers both fixed rate and variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates. Commercial Real Estate Loans: Commercial real estate loans generally are secured by first mortgages on real estate, including multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Properties financed include retail centers, office space, hotels and motels, apartments, and industrial properties. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, and economic factors that would impact the businesses housed by the commercial real estate. The company obtains appraisals from qualified certified independent appraisers to establish the value of collateral properties. The company requires title insurance, fire, extended coverage casualty insurance and flood insurance, if appropriate, in order to protect the security interest in the underlying property. Commercial Non Real Estate Loans: Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, borrower repayment ability and collateral value (if secured). Commercial and agricultural loans primarily finance equipment acquisition, expansion, working capital, and other general business purposes. Because these loans have a higher degree of risk, the company generally obtains collateral such as inventory, accounts receivables or equipment and personal guarantees from the borrowing entity’s principal owners. The company’s policy limits lending up to 60% of the appraised value for inventory, up to 90% of the lower of cost of market value of equipment and up to 70% for accounts receivables less than 90 days old. Credit decisions are based upon an assessment of the financial capacity of the applicant, including the primary borrower’s ability to repay within proposed terms, a risk assessment, financial strength of guarantors and adequacy of collateral. Credit agency reports of individual owners’ credit history supplement the analysis. Public Sector and IDA Loans: Public sector and IDA loans are extended to municipalities and related entities within the company’s geographical footprint. Borrowers include general taxing authorities such as a city or county, industrial/economic development authorities or utility authorities. Credit risk stems from the entity’s ability to repay through either a direct obligation or assignment of specific revenues from an enterprise or other economic activity. Repayment sources are derived from taxation, such as property taxes and sales taxes, or revenue from the project financed with the loan. The company’s underwriting considers economic and population trends of the municipality and the municipality’s reserves, pension liabilities and other liabilities. Consumer Non-Real Estate Loans: Consumer non-real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay. The company’s procedures for underwriting consumer loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Deposits Deposit products offered by the company include interest-bearing and non-interest bearing demand deposit accounts, money market deposit accounts, savings accounts, certificates of deposit, health savings accounts and individual retirement accounts. Deposit accounts are offered to both individuals and commercial businesses. Business and consumer debit and credit cards are available. The company offers other miscellaneous services normally provided by commercial banks, such as letters of credit, night depository, safe deposit boxes, utility payment services and automatic funds transfer. The company conducts a general trust business that has wealth management, trust and estate services for individual and business customers. National Bankshares Financial Services, Inc. In 2001, National Bankshares Financial Services, Inc. was formed in Virginia as a wholly-owned subsidiary of NBI. NBFS offers non-deposit investment products and insurance products for sale to the public. NBFS works cooperatively with Infinex Investments, Inc. to provide investments and with Bankers Insurance, LLC for insurance products. NBFS does not significantly contribute to NBI’s net income. Investment Portfolio As of December 31, 2022, the company’s investment portfolio included U.S. government agencies and corporations; states and political subdivisions; mortgage-backed securities; corporate debt securities; and U.S. treasury. Regulation, Supervision and Government Policy The company is a bank holding company qualified as a financial holding company under the federal Bank Holding Company Act of 1956, as amended (BHCA), which is administered by the Board of Governors of the Federal Reserve System (the Federal Reserve). As such, the company is subject to the supervision, examination, and reporting requirements of the BHCA and the regulations of the Federal Reserve. The company is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve is authorized to examine the company and its subsidiaries. The Virginia Banking Act requires all Virginia bank holding companies to register with the Virginia State Corporation Commission (the Commission). The company is required to report to the Commission with respect to its financial condition, operations and management. The bank is a national banking association incorporated under the laws of the United States, and the bank is subject to regulation and examination by the Office of the Comptroller of the Currency (the OCC). The bank’s deposits are insured by the Federal Deposit Insurance Corporation (the FDIC) up to the limits of applicable law. The OCC, as the primary regulator, and the FDIC regulate and monitor all areas of the bank’s operation. The bank is subject to the provisions of the Community Reinvestment Act (CRA), which imposes an affirmative obligation on financial institutions to meet the credit needs of the communities they serve, including low and moderate income neighborhoods. The bank has deposits that are insured by the FDIC. The company is subject to several federal laws that are designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities (AML laws). This category of laws includes the Bank Secrecy Act of 1970, the Money Laundering Control Act of 1986, the USA PATRIOT Act of 2001, and the Anti-Money Laundering Act of 2020. History National Bankshares, Inc. was founded in 1891. The company was incorporated in 1986 under the laws of Virginia.